ABA Section of Taxation 2018 May Meeting

In criminal cases involving tax counts, defendants being sentenced frequently wish to show remorse by paying the criminal tax loss prior to sentencing. These payments generally predate any actual civil tax determinations, let alone an IRS assessment. To allow the IRS to assess and collect an amount of restitution as if such amount were tax, Congress, in 2010, amended section 6201(a)(4). The result was that sentencing district court judges could now issue Restitution Orders permitting immediate assessment of the tax loss amount by IRS. Such orders are final and cannot be changed absent going back to the sentencing court. But tax loss for sentencing is not synonymous with deficiency for tax assessment purposes. The fact that these orders cannot be modified on a later audit based on actual tax owed, or compromised for lack of collectability, presents significant challenges for the civil tax representative. Cases decided by the Tax Court like Klein v. Commissioner illustrate the problem. This panel will explore the nature of these problems and possible solutions.